Subprime Auto Lending Continues to Rise


Subprime lending in the auto sector, which has been driven in part by rising used-vehicle sales, has continued to rise, according to a short note from Standard & Poor's this morning.

This trend was noted as a credit concern by some panelists at Information Management Network's ABS East conference held earlier this week.

At the securitization gathering, Kevin Duignan, global head of structured finance at Fitch Ratings, said that the number of lenders jumping into this sector "looks like something we’ve seen before,” a reference to the subprime mortgage market.

However, Duignan acknowledged that the U.S. consumer has been in much better shape compared to the time prior to the crisis, although underwriting standards for these loans have a potential to deteriorate.

In its short note, S&P said that buyers with subprime credit rose 48% year-over-year in October, which comes after a 63% gain in September. 

Approximately 42% of borrowers have FICO scores of less than 670, increasing from 27% in January 2010, the rating agency reported.

Meanwhile, S&P also mentioned that October used-vehicle sales went up 8% year-over-year to 3.5 million units. These figures are based on the first 20 days of the month, the agency said. 

Used-vehicle loans comprised 74% of the collateral of subprime and 21% of prime auto ABS deals over the 2Q12 time period, S&P noted.


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